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Manufacturing Costs Under Pressure: The Rising Prices of Copper and Aluminum

investigations

Reading time 5 min
May 02, 2024
Manufacturing Costs Under Pressure: The Rising Prices of Copper and Aluminum | Blog - Microwell

In recent times, the manufacturing sector has faced relentless pressures due to fluctuating raw material costs, among which copper and aluminum play pivotal roles. These materials are crucial components of the refrigeration circuits in heat pumps, an essential product in both domestic and industrial contexts. As manufacturers, we are again witnessing a substantial incline in the prices of these metals, with current trends indicating a significant impact on production costs.

The Surge in Metal Prices

Copper prices, in particular, have reached new heights, mirroring trends in major trading hubs such as the London Metal Exchange (LME), New York, and China. The prices have soared to more than $10,000 per metric ton, marking a period of a steady climb.

Key Drivers seem to be:

  1. Energy Transition: As the world shifts towards renewable energy sources, the demand for copper and aluminum—metals essential for constructing renewable energy systems—has increased.
  2. Supply Shortage: A dramatic decrease in „processing fee“ for the re-used copper, dropping from $87 to $10 has decreased volume of copper recycling.
  3. Bullish Financial Markets: There's a noticeable bullish sentiment in the financial markets, with investors taking extended long positions on these metals, anticipating further price increases.
  4. Interest Rate Cuts: Generally, lower interest rates can lead to more robust manufacturing activities as companies can borrow more cheaply. After major rate increase in 22 years and moderating the inflaction from two-digit values, while keeping the economy robust, seemed to have prepared a windows to lower the rates. However, recent fluctuations in inflation have raised concerns that the optimism regarding rate cuts may be premature. We may not see rate cuts anytime soon.

Implications for Manufacturing Costs

The rise in futures prices for copper and aluminum will inevitably translate into higher costs in actual delivery contracts. For our company, particularly, this could mean an estimated increase of 3.5% to 4.2% in the cost of copper (tubes) used in manufacturing refrigeration circuits. This forecast puts us in a position where finding cost offsets elsewhere becomes not just strategic but essential for maintaining our competitive edge and operational efficiency.

Ing. Peter Hrubina

Division manager

Email: phrubina@microwell.sk

Mobil: 0911 413 990

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